Economic Aggregates

As economic bad news continues to hit UK business from all angles it is important for those in aggregates to take stock of the bigger picture, argues Quarry Products Association (QPA) economics director Jerry McLaughlin in his latest MQR column. Unlike many suffering during the downturn aggregates firms have one key advantage.

This isn’t the case in some areas of the economy – hot tubs and olive oil retailers to name a couple of local casualties and loony tunes financial instruments on a bigger scale. But we’re not in those games, we’re producing products that society needs.

But clearly there is a pretty big blockage in the pipeline. And at the risk of spreading more negativity, its no use being unrealistic about prospects for the next two years. In 2008 we saw aggregates sales fall by 11–15%, ready-mix by 14% and some concrete products off the scale. Asphalt was down by only – if that is the right word -3%. But what about 2009?

There is no reason to assume the slide will stop. Housing starts will fall again by a pretty big number because even if, and this is a very big if, the flow of mortgage funds eases and house prices start to stabilize, there are still the issues of growing unemployment, and the equally pernicious fear of unemployment and negative equity.

There are also tens of thousands of unsold new homes. So there is no reason to imagine why the decline in housing activity will not bottom out until some time in 2010. Early 2010 if you’re an optimist, late 2010 if you’re not.

The big construction driver in recent years has been the commercial sector, notably the offices subsector. This will continue to fall in a big way because developers won’t start new projects in this environment. The same applies to industrial and warehouse/ distribution developments.

Some elements of infrastructure are positive, although roads activity won’t look better until we get into 2010, and schools and health will carry on growing for the next year or two. But this nets out as a big negative for construction in 2009, and probably a smaller negative in 2010.

So aggregates and concrete markets this year look set to follow a similar annual path to 2008, with asphalt prospects worse in 2009 than 2008. Meanwhile, 2010 doesn’t look too bright either. Markets may bottom out but overall growth could wait until 2011.

So where’s the bright side? Just consider recent developments in the energy sector. Government seems
genuinely interested in a Severn Barrage, and a recent presentation fronted by a raft of ministers announced a serious assessment. The amount of material potentially involved in such a scheme is astonishing. Similarly, sites are being identified for a vast expansion in off-shore wind farms. Deep water sites, massive gravity foundations, and so massive potential material requirements. Also, the process to
deliver significant new nuclear generation capacity for 2018 has started. Is this all pie in the sky? It can’t be, because Government knows that dramatic action is necessary to keep the lights on, and keep them on more greenly. Whatever the mix of investment, its going to be big, and it can’t happen without aggregates.

At a more mundane level, some readers will have seen the welcome return to our TV screens of asphalt industry eye-candy and QPA asphalt technical manager Malcolm Simms. He was wheeled on this month as programmes highlighted the dire post-big freeze conditions of our road network. This has got to be sorted out, even if Government is still doing its three wise monkeys routine.

I could go on. There is no escaping that the industry is suffering from dire market conditions, which are not going to get better anytime soon. But there is a future and the future needs our industry and its products.